Vol. 6 Num. 1 - GCG: Revista de Globalización, Competitividad y ...

Why isn’t Mexico on China’s Growth Path?96Both countries have better performance in their GDP per capita growth rates than in theirper worker rates. In part, this reflects the declining dependency ratios in both countries andthe growth of labor forces, which are faster than the growth of the overall population. A secondfeature of Figures 2 and 3 is the upward trend in China’s average annual growth rateafter approximately 1978 and the beginning of economic reforms. This shows up in both theper worker series and the per capita series. Third, Mexico’s performance in both indicatorsdeteriorates with the onset of the debt crisis and the Lost Decade in 1982. It is well knownthat growth rates after the 1980s recovered somewhat but remained far below their levels inthe 1960s and 1970s, and this is apparent in the data, as well. Fourth, Mexico’s gap betweengrowth per capita and growth per worker is sizable throughout the period of recovery in the1990s, with per worker rates falling significantly below per capita ones. Mexico in the 1990shad negative annual growth per worker with a large standard deviation (Appendix 1; García-Verdú, R., 2007, and Moreno Brid and Ros, 2009, note this as well).Some of the productivity differences between Mexico and China are related to the sectoralcomposition of GDP. In 2009, China’s manufacturing sector accounted for 34 percent of GDPon a value added basis, while Mexico’s was half that at only 17 percent. Similarly, servicesin China contributed 43 percent of GDP, while in Mexico they were 61 percent (World Bank,2011). China’s relatively larger manufacturing sector and smaller services sector means thatmore workers are employed in areas of the economy where it is relatively easier to raiseproductivity and fewer workers where it is more difficult. This is particularly the case whenconsidering Mexico’s many small, low value added retailers that have absorbed a significantamount of both urban and rural labor. And finally, while it is the case that China’s agriculturalsector is much larger (10 percent of GDP in 2009, compared to 4 percent in Mexico), the lastthree decades of declines in the relative importance of agriculture also favor China, since itbegan from a much larger base (30 percent of GDP in 1980 versus 9 percent in Mexico) andhas been able to free up a sizable amount of low-productivity labor for employment in themuch higher value added sectors of construction and manufacturing (World Bank, 2011).3. Growth accountingIn this section, a standard Solow growth model is used to analyze the patterns in Figures 2and 3. As a first approximation, output growth can be attributed to either factor accumulation(more capital and more labor) or to total factor productivity (more efficient use of inputs)or to some combination of the two. Increases in capital and labor, or more precisely, capitalper worker and labor skills, is relatively easy to understand conceptually; increases in theefficiency of inputs is more difficult to specify concretely, and has a relatively wide range ofinterpretations. Easterly and Levine (2001) summarize the literature, noting that total factorproductivity may reflect changes in technology, the role of externalities, changes in the sectoralcomposition of output, or the adoption of lower cost production methods. Empiricalwork that explores the relative importance of each of these factors across a sample of countriesor through time is lacking.GCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 91-106